EU Wants Greece to Explain Debt Swaps

AP

Monday, 15 Feb 2010 | 8:38 AM ETThe Associated Press

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The European Commission said Monday that it wants Greece to explain how it used complex financial deals that allegedly made its debt limits look lower. Greece's credibility is already under fire for falsifying statistics and hiding the extent of its deficits, which have triggered a debt crisis that threatens the euro currency union and has sent the euro sliding.

EU spokesman Amadeu Altafaj Tardio says the EU executive has given Greece an end-of-February deadline to give details on how the deals, called currency swaps, affected government accounts since 2001.

He said such swaps weren't illegal unless the Greece was not using market rates to calculate the exchange rates used for the swaps. Greece never told the EU that it was using the swaps to mask debt, he said.

Eurozone nations pledged last week to aid Greece "if needed to guard financial stability in the euro area" — but did not say how they would bail out the country if it risks defaulting on its debt payments.

European stock markets and the euro were trading higher Monday despite disappointment last week that euro leaders did not lay out a solid plan to shore up Greece's finances. Bond markets see less chance of a default, as indicated by interest-rate spreads narrowing between Greek bonds and benchmark German ones.

Finance ministers from the 16 nations that use the euro meet later Monday to discuss whether they think Greece's austerity program will be enough to reduce its massive deficit over the next three years. Ministers from all 27 EU countries then meet Tuesday.

The European Commission has already warned that it will ask Greece to do more if it can't implement promised spending cuts and tax hikes — which have already sparked protests and a sweeping public sector strike in Greece.

It wants to keep Greece on a tight rein, ordering the government to report back in mid-March to show what kind of cuts it has made. The EU could then demand tougher action. The Greek government has promised to do everything necessary to reduce its deficit from 12.7 percent of gross domestic product last year to 8.7 percent this year — and under a 3 percent limit set by EU rules by the end of 2012.

The EU's former economy commissioner, Joaquin Almunia, told reporters in Paris on Monday that "a clear set of commitments" were "needed for Greece and the good functioning of the euro area."